Closing out DVA

Closing out DVA

balance sheet

Financial institutions often consider their own default in the valuation of liabilities, including a so-called debit valuation adjustment (DVA) opposite the credit valuation adjustment (CVA) accounting for the counterparty’s default. DVA is a double-edged sword. On the one hand, it creates a symmetric world where counterparties can readily agree on pricing. On the other hand, its nature creates some potentially unpleasant effects, such as institutions booking profits arising from their own decli

To continue reading...